Stocks are lower this morning on no real news. Bonds and MBS are down small.

Neel Kashkari speaks at 10:00 am. The Fed funds futures are pricing in a 93% chance of a rate hike at the December meeting.

Industrial Production increased 0.3% in September as the effects of the hurricanes probably depressed the number by 0.25%. Capacity Utilization rebounded from August but is still lower than where it has been most of the year. Manufacturing capacity utilization is around 75%, which is 3% below its longer-term average.

Small business optimism fell in September, as the hurricanes in Florida and Texas took their toll. Job creation fell during the month by .17 workers per firm. We saw firms cutting workers in most census divisions, so this isn’t just a hurricane effect. That said, 19% of firms listed “difficulty in finding qualified workers” as their single most important business problem. This was the second overall issue, with the highest being taxes. Access to credit remains a non-problem as only 1% said their credit needs were not being met. Overall, sentiment declined from a historically high level.

Donald Trump met with John Taylor yesterday, and came away very impressed. Kevin Warsh had been seen as the front-runner, however he has attracted criticism from economists on the left, particularly Paul Krugman. Taylor is known for the Taylor Rule which sets the proper Fed Funds rate based on what his model tells him. He is probably more hawkish than Warsh, and certainly more than Janet Yellen, who Trump will interview this week. A Reuters poll of economists has Jerome Powell as the most likely choice.

Tax reform has the potential to make the mortgage interest deduction irrelevant for most homeowners. Note that many articles will breathlessly say the MID is “threatened,” however in reality it will just become irrelevant, as the standard deduction will increase and most people will be better off taking the standard deduction instead of itemizing. You can’t really call it “threatened.” Currently about 30% of the homes in the US are valuable enough to take the MID. Under tax reform, that number should drop to 5%, according to Zillow.